2015: A year of expansion and legal battles for FM radio industry

MUMBAI: After a wait of nine years, the private FM radio sector finally got the green signal for expansion in 2015, as the government fast-tracked the process to the FM Phase III auctions. 97 channels across 56 cities were won with the private FM radio companies coughing up Rs 1,156.9 crore (Rs 11.57 billion).

Although the sun shined on the FM radio industry, it also brought with it legal implications for some private FM radio companies. For instance, Radio Mirchi’s acquisition of TV Today’s Oye FM met with resistance from the MIB, whereupon Mirchi approached the Delhi High Court. Eventually, the radio company got permission to acquire the four non-metro stations of Oye FM. Radio Mirchi is still contesting the MIB’s decision to refuse permission for the acquisition of the remaining three metro stations of Oye FM.

Meanwhile, the Kalanithi Maran-owned radio stations Red FM and Suryan FM also got involved in a legal tussle as the Ministry of Home Affairs (MHA) denied security clearance to radio networks part of the Sun TV Group and barred them from participating in the FM Phase III auctions citing cases pending against the group. In a tussle involving the Madras High Court, Delhi High Court and the Supreme Court, the stations finally managed to participate in the auctions, but the results of the companies were sealed off. A decision in this case is also pending.

The only acquisition that processed smoothly was Jagaran Prakashan’s acquisition of Radio City.

However, the year had more positives for the radio industry with the long-pending expansion through the auctions, hike in FDI cap later in the year, and an overall positive ad sentiment.

Commenting on the same, RBNL COO Ashwin Padmanabhan said, “2015 started well with healthy ad revenues, followed by the announcement of Phase III auctions in September. It also ended on a positive note following the announcement of the hike in FDI cap for FM radio. However, the biggest highlight for the year was the Phase III auctions, as we are to see the action on that front in 2016.”

Ad boom continues

Radio has been growing steadily and consistently. However, the trend of nearly exclusive campaigns that started first with the retail segment, real estate in particular, followed by government and elections, made radio noticed by all.

Large advertisers now consider radio an integral part of their advertising strategy and not a complementary medium as better content and promotional spend by radio companies have helped create strong brands and draw more listeners.

The aggressive communication from start-ups especially from e-commerce companies gave extra boost to advertising on radio. Most of the high spending e-commerce brands like Flipkart, Amazon, Olx, Quikr, Big Basket, Fashion&You and Make My Trip chose radio for advertising.

Red FM COO Nisha Narayanan stated, “For us local advertising contributes more than 50 per cent and it has been growing year on year due to obvious reasons. In fact, the increase is not only in volumes but also in yield, which has seen around 10 per cent growth over the last year.”

The radio ad pie in the metro markets is now reaching up to 6–8 per cent, say operators. In some smaller markets it’s evolving gradually. The overall advertising, especially spending in the festive season, was stated to be at least 15–20 per cent higher than the preceding year due to factors like new government’s emphasis on economic reforms, positive advertiser sentiment and favourable macro-economic outlook.

ENIL MD and CEO Prashant Panday said, “One other important trend was that the metros grew faster than the small towns, which could be explained by the e-commerce spend.”

Padmanabhan added that the trend of advertiser-funded programming (AFPs) picked up during 2015, with brands seeking to integrate their brand messaging through innovative content.

Changes in programming and management

2015 not only witnessed changes in the programming and increased variety in radio, but it also saw some high-level management shuffle in some radio stations.

For example, FM elevated Ashwin Padmanabhan to the role of COO of the group, to oversee the TV and radio business of RBNL. Meanwhile, the acquisition of Radio City by Jagaran Prakashan saw the radio CEO Apurva Purohit move to a bigger role as president of the group. The radio network’s COO Ashit Kukian went back to Times Network. As a result, Thomas Abraham was roped in as the new CEO of the company.

In terms of programming, Big FM launched its new logo and revamped the Chennai station to play contemporary hits. It also experimented by launching integrated properties on radio and its TV channel Big Magic.

Interestingly, Radio One, which did not see much action during the year, also changed the positioning of its Chennai station to a 100 per cent Bollywood channel. It roped in Bollywood star Hrithik Roshan to host a youth show on the station called ‘Youth Stars’. Further upping the celebrity quotient, the network roped in six celebs from across the fields of sports, music, travel, food and fitness for its property ‘Get Some Sun’.

Going beyond on air, Radio Mirchi launched its music award property Mirchi Music Awards in Punjabi and also launched India’s first airport radio. It also launched its first Punjabi online radio station called Yo Punjabi.

Radio City revamped its Sunday programming and brought in an array of new shows and segments featuring unplugged music, historical and autobiographical tales and comedy shows.

My FM, on its part, turned its popular late-night storytelling show into a book titled ‘Zindagi Express’.

These innovations in programming could further help bring an upswing in advertiser sentiment, as they see more value.

Impending issues

Some industry experts believe that the high bids made during the auctions are going to be disastrous for the industry. The bids for Delhi and Mumbai were completely unviable because at these bid levels the second frequencies will have to generate higher revenues than even the first ones.

“The larger question that the government must answer is: Why were there so many flaws in the auction design? Why did government not release more spectrum before conducting auctions, especially after TRAI recommended twice that more spectrum should be released by halving channel separation to 400 KHz? Why did the government impose silly restrictions like a 15 per cent national cap and 40 per cent city-level cap? How did this help the industry? Big players could not bid widely as a result of these two caps; this caused 38 frequencies to remain unalloted. A lot of changes are needed. As an industry, we need to work with the government on improving the policy regime,” said Panday.

Narayanan further added that the three-year lock-in period as prescribed under the FM Phase III policy might have an adverse impact on acquisitions in the industry.

“It should have been removed for the existing players who have already served a five-year lock-in under Phase II. We are not sure how M&A deals will go through with this lock-in, especially for people looking at multiple frequencies. It will definitely make acquisitions less feasible for operators.”

However, for radio to grow, it needs to have greater geographical presence. The expansion will translate into larger reach and better ROI for national advertisers. This will also attract strategic investors and foreign players to invest in the FM sector.

Expansion in 2016

Radio certainly will see lot more growth in coming years, especially in 2016–17 when most of the new frequencies auctioned will become fully operational.

The winners of the first batch of the FM Phase III auctions included HT Media, ENIL and RBNL, which spent big monies on acquiring the frequencies.

Delhi, Mumbai and Bengaluru shaped up as the three big FM radio cities as they accounted for 45.3 per cent of the total bid amount. The three metro cities, each crossing the Rs 100-crore (Rs 1 billion) mark, received a total winning bid amount of Rs 524.05 crore (Rs 5.24 billion).

HT Media’s Fever FM picked up the lone frequency in Delhi and another in Mumbai while ENIL picked up the lone frequency in Bengaluru and was the only player to acquire a third frequency in Hyderabad among other cities.

“As always, we bid keeping an EBITDA break-even of 18–24 months and a full cash pay-back period of 5–6 years. We hope to launch the first few stations by March 2016 and finish it all off by Oct–Dec 2016. The cost varies from Rs 2 to 5 crore per station,” stated Panday.

RBNL and Radio City remained focused on Tier II markets, while My FM focused on expanding its presence in the smaller markets.

Padmanabhan said, “Though we would like to launch all the metros and mini metros as soon as possible, our plan is to roll out launches for Pune, Lucknow, Patna, Varanasi, Nagpur and Kolhapur, followed by other markets.”

My FM CEO Harrish M Bhatia said they were very clear to bid for stations in Tier II and III markets and follow their parent group’s footprints.

“We are looking at operating break-even in less than three years, something that we have managed in the past. By April/May 2016, the new frequencies may be up and running. As far as format is concerned, we are a customer-centric organisation. We will study the tastes of the target audience in these markets and accordingly play music. The basic format of the channels will remain consistent. We have kept about Rs 37 crore (Rs 370 million) for the set-up,” he revealed.

Calendar year 2015 saw a 12–14 per cent growth. CY16 should be better as new stations come to life and radio players peg the growth to be 16–18 per cent and then rise to 18–20 per cent in FY18 as all Phase III stations become operational.

“The next batch of auctions comprising nearly 800 licences should now happen in the next 6–12 months. All Phase II licences were migrated to Phase III by paying the migration fees. With this, we have got certainty about the business for the next 15 years and that’s a very big deal,” Panday concluded.